For years, the banks held a pseudo-monopoly over the payment processing industry.
When it came to payment processing, they were basically the only game in town, and even today, many people still believe banks are the only legitimate providers of this service.
But the fact of the matter is, for many years now, there have been lots of non-bank providers offering payment processing, often at much lower rates than the banks have been charging.
So, why are people still clinging to the false belief that banks are the only valid providers of payment processing?
Well, as we discussed in our last article, which explored Two of the Biggest Myths About Payment Processing, a lot of this comes down to myths that have no basis in reality.
For example, many business owners will choose a bank for their payment processing, because for whatever reason, they believe they can give them a better deal, but that’s nothing but a bunch of nonsense.
We’re not quite sure why people are choosing to believe these fallacies, but as part of our effort to do what’s in the best interests of business owners, we figured we should explain why the banks are never going to help you save money on payment processing.
So, if you’re getting your payments processed by a bank, and you’re sick of paying so much, then you’re going to want to keep reading.
Because in this article, we’re going to dispel this myth once and for all, and explain why merchants, and the payment processing industry as a whole, would both be better off if people stopped giving their business to banks.
Why the Banks Will Never Help You To Save Money on Payment Processing
It may sound simplistic, but the banks didn’t get to where they are today by giving people good deals.
The only way they could have ever gotten to where they are right now – making tens of billions of dollars in profit every year – is by charging as much as they can get away with, and using deception to draw attention away from that fact.
As our VP of Operations, Steven, likes to point out, banks don’t have any reason to offer lower prices because they’re essentially guaranteed a steady stream of customers.
Furthermore, these banks are running such enormous operations that the only way they can sustain themselves is to continue to reap obscenely high profits, and they’re not going to be able to do that by giving you a discount.
What you have to understand is that first of all, most banks have thousands of shareholders, and as is the case with any publicly-traded company, their foremost responsibility is to provide a return on their shareholders’ investments.
Secondly, and just as importantly, most banks have massive overhead, which, among other things, includes thousands of employees, and hundreds or even thousands of ATMs and branch locations.
So, why aren’t the banks ever going to help you save money on payment processing?
Because their constant stream of customers gives them no incentive to lower their exorbitant prices, and even if they wanted to, they couldn’t afford to do it anyway.
With that in mind, there’s really no benefit to going with a bank, regardless of what they say, and the only real difference is you’re going to be paying more.
How Things Have Changed Over the Years
To be fair, the cost of payment processing in Canada has gone down significantly over the years, particularly when it comes to interchange fees.
The cost of these fees is set by the credit card companies, who charge them as a percentage of each transaction.
If you’d like to learn more about interchange fees, you should check out our article on What You Need to Know About Interchange Rates in Canada.
At any rate, on top of all those interchange fees, the banks typically add a litany of other fees to merchants’ bills, including fees for payment terminals, statement fees, network fees, data fees, and of course, the always ambiguous “miscellaneous” fees.
Whatever it is they’re charging, banks are responsible for most of the cost of payment processing, and the sad reality is nobody really knows what many of their fees are for.
In any case, as we already mentioned, interchange fees in Canada have gone down considerably, particularly over the last decade or so, and this comes as a result of greater scrutiny by merchants, the media, governments, and groups like the Canadian Federation of Independent Business.
To put things in perspective, when we started in this industry ten years ago, there were a ton of rewards cards and corporate cards that had interchange fees as high as three per cent.
Today, we rarely see cards with interchange fees this high, and over the last couple of years, for the first time, we’re seeing quite a few cards at less than one per cent.
Sadly, despite these fees being significantly lowered by the credit card companies, Canadian business owners are still getting gouged on their payment processing.
But if the cost of these fees has gone down, then why is this still happening?
Well, unfortunately, many banks have been taking advantage of the situation with some pretty deceptive practices.
The Dirty Tricks Played by the Banks
While much of this stuff can’t be proven, we’ve seen more than enough statements to be aware of the dirty tricks the banks have been playing.
One of the tricks they like to play is that when interchange fees go down, instead of passing these savings on to their customers, they’ll use this as a buffer.
What do we mean by that?
Well, as credit card companies charge less for each transaction, this gives the banks the opportunity to charge other fees, because they know they can get away with it, as most merchants will still be paying a similar amount each month, and therefore, they’re unlikely to notice the cost of these new fees.
Moreover, many merchants aren’t even aware of what interchange fees are, so they’re not going to know when they go down, and this makes it even easier for the banks to take advantage.
One thing they’re notorious for is making merchants think they’re getting a good deal by offering them lower rates on the transactions that are costing them the least amount of money, while keeping them unaware that they’ve raised their rates on the transactions that are costing them the most.
This is just one example of the way banks are taking advantage, but make no mistake, they have a long history of these kinds of deceptive dealings.
We’ve even noticed one bank in particular that will offer a discounted qualified rate to merchants, but then jack up the price on their non-qualified rates to make up for whatever the discount is, meaning they probably won’t save anything.
The bottom line is the banks know that many merchants are unfamiliar with the costs associated with payment processing, and they’re taking full advantage of that ignorance.
Why You Should Avoid Giving Your Business to Banks
At this point, it’s obvious why merchants should stop giving their business to banks, but we felt it was important to go into greater detail on this point and provide proper context.
From our perspective, the main reason why the cost of payment processing is so high in this country is because of the banks, and the way they’ve been taking advantage.
That being said, things are never going to change so long as merchants continue to give their business to banks.
So, if you want to save money on payment processing, one of the best things you can do is choose a non-bank provider.
The more business owners do this, the more the banks will realize that we’re on to them, and the more incentive they’ll have to remain competitive by actually lowering their prices.
Furthermore, as we said above, typically, the banks have massive overhead, thousands of employees, and thousands of shareholders, so the last thing they want to do is give you a discount on your payment processing.
On the other hand, here at Lucid Payments, we’re privately owned, which means we don’t have any shareholders, and we’re a much smaller company with less than a dozen employees, so we can actually afford to give you a good deal.
At the same time, our mission is to do what’s in the best interests of business owners, which is why we prefer to use what’s known as cost-plus pricing.
What this means is that whenever the credit card companies reduce their interchange fees, we’re going to pass those savings on to you, which can save you hundreds or even thousands of dollars per month on your payment processing.
At the same time, we will never take advantage by sneaking “miscellaneous” fees onto your bill, because this kind of deception is just plain wrong.
There are also many other non-bank providers out there who actually care about their customers and want to save them money on payment processing.
That being said, we’d much rather you give your business to a non-bank provider – even if it’s not us – than see you giving your business to the banks, as that decision is going to benefit both business owners and our industry as a whole.
Want to learn more about what we can do to help you save money on payment processing? We love to help merchants keep more of their hard-earned money. Give us a call today to learn more about what we can do for you.